Shorter Krugman on fiscal cliff: We won. I’m ticked.

We tend to love Paul Krugman on this site, so it’s rare that I disagree with the man. But his analysis of the fiscal cliff deal strikes me as contradictory. He’s basically saying that we won, but he’s upset because of the way we won.

So why the bad taste in progressives’ mouths? It has less to do with where Obama ended up than with how he got there.

Krugman is talking about the fact that many feel that President Obama caved on his earlier promises (such as not extending the Bush tax cuts for anyone making over $250,000 a year) in order to reach this deal:

He kept drawing lines in the sand, then erasing them and retreating to a new position. And his evident desire to have a deal before hitting the essentially innocuous fiscal cliff bodes very badly for the confrontation looming in a few weeks over the debt ceiling.

If Obama stands his ground in that confrontation, this deal won’t look bad in retrospect.

I’m sorry, but this doesn’t make much sense. We got what you wanted, but you still feel we lost because you don’t like the way the President got what we wanted. What was wrong with the President’s approach, I ask? He caved on his promises, you say. But if the President caved on his promises, then how did we end up with what you wanted?

I’m the first to criticize the President for his “cave first, negotiate later” negotiating style – and we criticized him heavily during his first term on this very point. But I think it’s significantly harder to argue that “he caved” if you also claim that he got what you wanted.

Krugman argues, earlier in the same piece, that there are two ways progressive can lose the fiscal cliff fight.

2. “For conservatives to successfully starve the beast — to drive revenue so low through tax cuts that the social insurance programs can’t be sustained.” On this point, Krugman says that the fiscal cliff deal falls short of making up the money lost from the Bush tax cuts. But, he also notes that you really can’t start at zero – i.e., no tax cuts – you have to start at tax cuts for everyone making under $250,000, since that was the Democratic position. So, you have to look at how much money is lost by changing the tax cut maximum from $250,000 to $400k/$450k, the amount in the fiscal cliff deal. Krugman says the difference is only $200 billion. Krugman goes on to explain that over the next ten years, it’s a “not crucial” amount of money.

So, the President didn’t cave on Medicare and Social Security. And he didn’t cave on giving away so much in tax cuts that we set ourselves up for a future budget crunch that ends up forcing cuts to Medicare and Social Security. But we’re still upset about the deal, because we feel like the President caved, even though he ended up getting what we wanted him to get.

This may be a bad deal, I don’t know – but it’s going to take better logic than that to convince me.

One final point. I’m not sure if what Krugman is arguing is that even though we didn’t get rolled by the Republicans, we still could have gotten a better deal had the President not caved. Maybe, but it’s not really clear to me where the President caved. Krugman admits that the President’s concession to up the Bush tax cut threshold by a couple hundred thousand dollars doesn’t add up to very much in the grand scheme of the budget and the deficit. So that’s not it.

On the estate tax, perhaps?. As I’ve already noted, I’m not very sympathetic to the notion that someone with a million dollar estate is akin to the Koch brothers. You know what we call a million dollar house in Washington, DC? A “house.” Price are so high in DC that owning a million dollar home does not even vaguely make you rich.

Then perhaps its anger over the end of the payroll tax cut holiday. Then how exactly are we going to fund Social Security if we’re going to permanently remove the funding mechanism for Social Security? And in any case, I don’t recall people making the argument two years ago that we were going to permanently repeal the Social Security tax because it was somehow immoral. That sounds like a Gingrich argument, not a progressive one. So, while I don’t have a lot of extra cash laying around to pay more this year, this is a tax we’ve had forever, and we all accepted it as part of our social contract. It was only a matter of time before it came back, so I do not buy the “it’s a new tax increase!” argument. It’s part of the deal you made in being an American. And we got lucky enough to get away with two years of not paying for it. Now that holiday is over.

Some argue that we should have just gone ahead and forced the House GOP to accept everything we wanted, and the House Rs would have had no choice but to vote for it. So far, the House Republicans are refusing to vote for this deal, which begs the question as to why they’d support a deal that’s even more progressive and less conservative?

John AravosisFollow me on Twitter: @aravosis | @americablog | @americabloggay | Facebook | Instagram | Google+ | LinkedIn. John Aravosis is the Executive Editor of AMERICAblog, which he founded in 2004. He has a joint law degree (JD) and masters in Foreign Service from Georgetown; and has worked in the US Senate, World Bank, Children's Defense Fund, the United Nations Development Programme, and as a stringer for the Economist. He is a frequent TV pundit, having appeared on the O'Reilly Factor, Hardball, World News Tonight, Nightline, AM Joy & Reliable Sources, among others. John lives in Washington, DC. John's article archive.

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Finally, someone understands what is actually in the bill. Basically, the gop got nothing when you get right down to it. The people whining have NOT read what is in the bill but are only reacting to something they read on a blog somewhere. Too much trouble to actually read.

You obviously have no clue as to what you are talking about and I doubt that you care enough to find out. But, just what long-term conservative/neo-liberal concessions are you talking about?
Don’t bore us with long rants of nothingness, but provide ACTS.

DetroitSam

Paul krugman is fast reaching his sell-by date and is just becoming annoying. I consider him to be one of the EmoProgs. Take a few minutes to watch these two videos from Current TV’s War Room show. The formed gov Granholm breakes out what is in the bill with lists.

“The cliff bill is a fiscal disaster. Those under 450k get permanent tax cuts. The deficit will be fixed entirely by cuts in the future.”

GaiusPublius

Thanks, ezpz. Yes, he misses much.

GP

usckitty

I tend to agree with you, Tiberius…this is nothing more than the facet that the Kabuki theater artists play in Washington…The Dems run on Progressive promises, or if that’s not enough, they run on the premise that, “hey, at least we’re not as crazy as the GOP…Then, they cave in the name of bipartisanship, which is the Beltway’s favorite talking point, as if it’s what the middle class wants, to get screwed over in favor of enriching corporate America and the Koch brothers in a bipartisan manner…surrendering their Progressive electoral promises in favor of giving the top 1% and corporate America a blank check. ”

Then they turn around and say that it’s the best that they can do, or else the GOP will destroy the fiscal solvency of the country or that if they don’t cave, I mean compromise, then the economy will suffer and EVERYONE will suffer. The GOP is then allowed to continue their hostage-taking tactics and is rewarded like the spoiled brats that they are, and the temper tantrums continue. Who benefits? Corporate America and the top 1%…while the people get crumbs and get screwed in the end…

Obama is not a Progressive, never was…but he ran as one…to get us to vote for him…

ezpz

“The reality of the two choices” is that they’re BOTH evil, something for which I don’t cheer. If you believe that there is a lesser evil, then you must also believe that someone can be just a little pregnant, right? There is no lesser evil. Evil is evil. Period.

Swami_Binkinanda

given the reality of the two choices, you might as well cheer for the one that is the least harmful.

lio

600B$ for no spending cuts. Did you seriously think he was going to get 1.2-1.6 trillion $ in revenues without any spending cuts? More importantly, do you think there should be no spending cuts whatsoever?

TiberiusB

And I would still say that yes, it does make you rich. Consider the fact that you have a million dollar asset (not a mortgage or rent), then consider that your other costs are probably not similarly inflated (e.g. food, utilities, and other commodities are the same as for everyone else, or moderately more expensive…there are no Weimar Republics that I know of in the U.S.), meaning you likely have as much or more money than most other people living with a mortgage or rent due every month. Even if everything falls apart and you are forced to sell your home, you will likely wind up with hundreds of thousands, if not close to a million in the bank to take with you. Now imagine you say “screw it, I’m moving to Ohio and work in a bakery.” You could easily buy a bigger house for a fraction of that original million and put away the rest for an early retirement. That’s way beyond what the majority of Americans can hope for.

truthseeker

It depends where you are. A studio apartment where I live (New York) can be up to $2,500 per month. A one bedroom apartment up to $4,000; a two bedroom up to $5,000 per month. Those are not huge places to live and are rather “normal” in size. That translates into about a 2 bedroom for $1,000,000, and, yes, that’s not a “rich” person. However, if you owned a million dollar house where I am from (Ohio), yes, in all likelihood, that would be a pretty damn good indicator of being “rich.”

rmthunter

It might help if you think of it as an insurance premium rather than a tax. And remember, you only pay half of it. (Unless you’re self-employed, and then it’s really a bite.)

ezpz

Whatever the reason, he leaves a lot out. Lies of omission are still lies.

Happy New Year to you, too.

GaiusPublius

Small point, ezpz. I agree that Krugman is often soft when he shouldn’t be. But I don’t think party loyalty is the reason. Maybe collegiality, professional professorial courtesy.

Again, a small point. Happy new year, all!

GP

GaiusPublius

Thanks, BeccaM, for the comment and also to the responders in this thread. Many many good points here.

GP

ezpz

“Krugman is too kind to Obama….”

And you’re being too kind to Krugman. This is deceit by Krugman, not kindness. He’s a party loyalist shill and as such, he’ll never point out the obvious about 0bama and the Ds. And if/when he DOES (seem to) criticize, it’s done with a deceitful spin.

Soullite

Everyone knows what’s going to happen here, no matter how hard the liberal bloggers try not to know it.

In a few months, the Republicans will demand cuts to medicare and social security. And Obama will give both to them, claiming that he has no more leverage, and there’s nothing else he can do. Because Obama wants to cut social security. He wants to cut medicare. He wants to keep most of the tax cuts on the wealthy in place. So he set it up to make sure that all three happen.

And in a few months, you’ll all find a way to make that ok, too. The Democratic party and its hangers on have spent the last few years in rationalization mode. I see no sign that they have any intention of rejoining the reality-based community any time soon. Maybe come 2017, but not any time soon.

rmthunter

First off, nothing that Congress does is forever. Anything one Congress passes, the next can repeal. It’s all temporary.

I’m seeing Obama, as usual, playing a deeper game, but I’m not sure of the point: he forced Boehner to pass a bill without the support of the fringe elements of his caucus (including Cantor), but with Democratic votes, which is a place Boehner, really didn’t want to go — he wanted a Republican bill. I personally think Obama gave away more than the had to, but then, he always does. (And I’m still figuring the odds of the chained CPI popping up again — Social Security has gotten a respite, not a reprieve.)

What pisses me off is I wish they’d all stop playing games and get the country back in shape. That’s what pisses me off.

TiberiusB

Or condo, I guess?

TiberiusB

Wait, are you saying you live in a million dollar house?

TiberiusB

Pardon the pun, but that’s an apples-to-oranges comparison. If the apple is my only source of food, then I HAVE to buy it. I’m trapped and have no choice and have to shell out the money, assuming I have it, which, unless the median income for your customers is a cool million, I probably don’t. So you would likely have a lot of dead middle class customers. If I choose to live in a particular neighborhood, then I have to accept the associated costs. Or are you suggesting that everyone that lives/works in DC lives in a million dollar house? Were you really rich in Argentina, or simply comfortable? I’m betting the latter. You were also leveraging your dollars against the weaker Peso, which is a sort of like choosing a cheaper place to live around DC, like I said earlier (just way harder to do). What I said still stands, if you’ve got the cash to own a million dollar home (and assuming you didn’t inherit it and are just barely able to afford the taxes), you are rich. Maybe not so rich that some bad luck won’t knock you back down amongst the rabble some day, but still far better off than most. Even if that million dollar house was your only asset, you would still be better off than 98-99% of the country. That’s not rich?

TiberiusB

This is, I think, a critical error in perception that far too many liberals and progressives suffer from. Obama is not a terrible negotiator if you step back and assume that this is what he really wants. In other words, it’s a feature, not a bug.

Quiddity

Where are these million dollar apples people are buying? If it’s the case that food is that expensive, then certainly, there’s a good argument that owning a million dollar home does not make you rich.

Quiddity

Agree with that.

Quiddity

I don’t care about process if the outcome is good. The outcome in this deal is not good. The estate tax is a disaster.

So, yeah, let’s examine process and promises. It’s evident that Obama forced this on mostly reluctant Democrats with a pledge to stand firm (!) on the debt ceiling when it comes around.

Where was any testing of the Republicans? Since everybody knows that the first two weeks of the new year allowed for some experimentation. I wanted to see a liberal bill have a chance. It might be defeated, but where was the effort?

Because their votes were required, House Democrats had enormous leverage over the outcome. The White House could have used that to their advantage. They didn’t use it at all.

bushtheidiot

Obama started at $1.2 trillion in revenue (source: http://goo.gl/xFwty) and ended with $600 billion, and gave up all his leverage for when the big fight comes over sequestration and the debt ceiling.

If that’s your definition of victory, I hope you are a Seahawks fan.

bushtheidiot

Krugman is too kind to Obama. He says the president started at $800 billion, that is wrong, the president started at $1.2 trillion (source: http://goo.gl/xFwty), and ended up with $600 million–giving away all his leverage over the debt ceiling and sequestration fight that will be coming in two months.

Krugman is concerned that Obama drew a line in the sand and that Obama then ignored it, and that next time, when his position is even weaker, he is going to roll even harder.

This is a good deal only in the context of the deal, when you start pulling back and seeing the long game, this was a short term political victory at the risk of long term disaster. The bloody fight comes in February, and the President just spent all his political “capita,” as the Idiot liked to call it.

MichaelS

*Exactly.* That’s called the long game, and the Republicans are winning that in spades. We’re losing it by exchanging it for some short-term wins. Watch out in ten years… especially when interest rates rise and the cost of just carrying the debt we already have will dwarf anything else in the budget.

Sweetie

The propagandists won. If their fiscal cliff BS would have truly been exposed for the BS it is (the lack of a deal before “cliff day”), then propaganda would have suffered a bit of a hit. I knew that wouldn’t happen and it didn’t.

MichaelS

“when Obama makes a campaign promise or stakes out a position from which he says he will not be moved — he always moves”

This is perhaps the most important point of all. He has proved that, even with an historic electoral victory and the wind at his back, he is still the single worst negotiator I have ever witnessed. *I WISH* I could be negotiating across the table from this guy…

MichaelS

THANK YOU – you said it all far more articulately than I could have. (And I’ve *always* been pissed at the social security tax, the single-most regressive tax in the entire Code.)

Tactics are important but knowing your end position is important as well. You’ve got to see what was said on the campaign as a starting point, not a line in the sand. It’s a direction we vote for, not a definite destination. And the direction is right SO FAR with this deal.

Republicans got NO spending cuts, only half the income tax cuts they wanted, if they pass it in the House will have moved on their absolute position of “No” on capital gains and the estate tax. Tell me again how Obama caved? I’m not pleased with the deal, i think we could have kicked the dog for more but other fights are left to come. This is a win in no uncertain terms. Be not mistaken.

Having a million dollar house in DC doesn’t make you rich, that’s right. But, INHERITING a million dollar house in DC makes you a million dollars richer than you were before inheriting it. It’s brand new income to you which you haven’t paid taxes on before. So, pay the taxes on it and you’re still way ahead of what you had before. And, if you can’t pay the taxes, then sell it, pay the taxes and keep the difference. Again, still way ahead.

What you are really arguing is that “family” money should somehow stay in the “family” free of charge. If it is your parent’s estate. it’s theirs… NOT YOURS. Why should “family” money, that the beneficiary didn’t work for or earn, be treated any differently than money you might be left by someone you aren’t related to? Besides, the first MILLION or two is already exempted from the estate tax.

Actually owning a home in DC is not like buying an island home. I’m not sure where you’re getting you’re information. As for DC being desirable, I hate DC. It’s a horrible town. I live here so I can work in politics. Again, I question where you’re getting you’re information about life in DC. And I’m sorry but my ability tose my condo and change cities, losing my health insurance and my job in the process, hardly makes me rich. Again, you have an incorrect view of life in DC.

Finn

If you don’t think owning a million dollar house makes you rich, you are seriously out of touch.

Lt brinson

I have a general question maybe it just stems from my ignorance on some this, but looking at this deal I have to say I dont quite like it either. The CBO said it would cost 3.97 trillion.Thats exactly what the Bush tax cuts cost the Nation prior to this moment. We ran against that policy for 3 elections and won 2 of them. I would be less worried if i knew that the money that 10 years from now when the debt is at 25 trillion because of the Obama tax cuts wouldnt be used against the next democratic president or congress as a way to cut SS or medicare. Im not sure if that is worded correctly but it just seems like we are allowing Republicans to win in the future. They dont care about debt and deficit they care about cutting govt and defense spending. And we are making it easier on them but doing a second round of un-stimulative tax cuts that just drain our coffers. Maybe getting out of Afghanistan and Irag and cutting defense will get us there but Im just not seeing it. I honeslty wouldve preferred all the tax cuts expire and use the money for things like less expensive child care or paid maternity leave or an increase of the minimum wage.

jdrs0819

Krugman is saying that we won’t know if we won until the debt ceiling is raised. If it’s raised and we don’t give up much else (if anything), then the deal is fairly good. That’s where I am; it’s also why we’re both still worried.

sfer

Sorry. It wasn’t meant to be a personal attack. The estate tax historically was adopted in the UK as a means to resolve the problem that arose when capital (primarily land) became concentrated in the hands of a relatively small group of people (the aristocracy). The estate tax addressed this issue by not allowing wealth to simply accumulate from generation to generation. The older system was actually very inefficient economically, as the aristocracy accumulated property which they left unused. Had the property been broken into smaller landholdings, the owners would actually use the property for productive purposes (raising crops, for example). The income tax would not address the issue, as land left idle produces no income. The estate tax (along with property tax) addressed this issue.

Abandoning the estate tax and allowing massive accumulation of inherited wealth does not create jobs and provides no benefit to the country or to anyone except the lucky heirs.

So I’d I charge you a million for an apple an uiu buy the apple be use you’re starving, you’re rich. Even though now you’re also broke and still starving. I’m sorry but suggesting that income, unrelated to prices, makes you rich is just wrong. I was rich when I worked in Argentina because I had dollars. When in returned to DC I was a poor student.

RepubAnon

What Paul Krugman was worried about was that President Obama stated that he wouldn’t sign off on a deal that didn’t end the Bush tax cuts for folks making $250K or more… yet he signed off on a deal that set the bar at $400K. This encourages folks like Mr. Cantor to think that President Obama is so desperate for a deal that they can wring more concessions from him – as the Republicans are apparently attempting to do.

Tactics are very important in negotiations – send the wrong signal, and the other side may think they can get a better deal.

“Price are so high in DC that owning a million dollar home does not even vaguely make you rich.”

And it’s awful that beachfront hotels on Kauai are more expensive than equivalent hotels in Dayton. Yes, owning a million-dollar home makes you vaguely rich (only vaguely, I agree, not very rich). Because you could sell that and buy a palace in Iowa. D.C. is clearly a much more desirable place to live, so you pay a premium for that. The ability to do so makes you at least modestly rich.

You have to compare yourself to all Americans. Not just your neighbors. Doing the latter is what makes Wall Street guys cry poverty when they “only” pull in a million a year.

Tiberius

First, I don’t get the impression Krugman thinks we “won”. As for the rest, I think he is simply pointing out what a lot of us have been consistently saying, Obama can always be counted upon to negotiate with himself and wind up moving the needle much further to the right than necessary. Why didn’t Obama start the negotiations at 120k so he could wind up at
250k? Isn’t that what has always been said, start further left than what you expect to get so you have some leverage? As for the 200 billion, have we become so blinded by the
trillions thrown around by the Fed and the banks that 200 billion is now
seen as a big “whatever” number? How about the lost revenue from the
estate tax? That’s going to be several times the lost revenue from the
income tax ceiling. Others have explained why the estate tax is
important, so I won’t belabor the point other than to say “Google it.”
It all adds up, and in no time you are talking about the big “T” (trillions). And sorry, having a million dollar house in DC does make you rich. Just
because you aren’t the richest among the rich doesn’t make you middle
class. The whole “rich depends on where you live” argument is absurd.
OF COURSE you can live somewhere hideously expensive and spend a small
fortune for the privilege, but that’s only true if you have a small
fortune to spend. Think about it. As for the payroll tax, Krugman
didn’t complain about that at all, so who are you addressing? Obama has
multiple times offered up cuts to Medicare and SS and has only been
stopped by the extremists on the Right. Is that his strategy? Maybe,
but it’s ludicrously dangerous and it makes the impending debt ceiling
battle all the more terrifying. Maybe that’s what Krugman meant. Did
Obama win, or did the GOP save us from him, and how many more times can
we afford to take that chance?

First of all, there’s the principle involved, where once again it is clear that when Obama makes a campaign promise or stakes out a position from which he says he will not be moved — he always moves, always breaks the promise.

Secondly, one of the main reasons the deal the Senate passed is bad is that it contains a bunch of short-term progressive goals in exchange for long-term conservative/neo-liberal concessions. They’re codifying the Bush(/Obama) tax cuts and making them permanent for what? A year of unemployment insurance, short-term tax relief extensions, another temporary Medicare doc-fix, a nine-month farm bill extension, and two months of sequester abatement, with nothing done about the debt ceiling. Also, five year extensions of the Earned Income Tax Credit, the Child Tax Credit, and the American Opportunity Tax Credit.
Nothing permanent.

I further believe it’s a misrepresentation to say that Obama didn’t cave on chained-CPI and Medicare cuts — he kept putting them on the table, saying he was totally fine with “entitlement reforms” (aka, short and long-term benefit cuts). It was the Senate Democrats who kept pulling these proposals back off the table in the negotiations.

It’s not so much anger of things like the end of the payroll tax ‘holiday’ — which really did need to come to an end because it starves SS/Medicare of their dedicated funding sources. It’s that Obama and the Dems didn’t push for anything to alleviate the pain that regressive 2% tax increase will inflict on poor and middle class Americans. No reinstatement of Making Work Pay. No serious proposals to lift or abolish the payroll tax cap, which would ensure long-term viability of both programs and end the financial justifications for cutting benefits.

In summary: Everything the Dems say they won is short-term, and in the case of the sequester, a mere sixty days — which for the GOP conveniently puts it right on top of the debt ceiling limits. What the GOP got? A whole basket of forever-goodies, including a permanent inflation-indexed increase on the estate tax exemption, a permanent AMT fix (actually this isn’t a bad thing…), permanent status for about 80% of the Bush tax cuts, continued inequality between capital gains and regular income tax rates, plus promises for additional spending cuts when it’s time for the sequester to kick in. And best of all for them, they get to keep their debt ceiling hostages.

“So, the President didn’t cave on Medicare and Social Security.” My guess is that this position is a 11ty dimensional feign by Obama for the real deal coming up in a few months. There we will see significant cuts to Social Security, Medicare and Medicare. Nancy Pelosi has been saying so for the better part of a year now. Obama will go down in history as the first black president—–to destroy the New Deal.